Capital Expenditure (CapEx)
Definition
Capital expenditure (CapEx) refers to funds spent by a business to acquire, upgrade, or maintain long-term physical or intangible assets such as equipment, property, or software. Unlike operating expenses, CapEx is capitalized on the balance sheet and depreciated over the asset's useful life.
Overview
Capital expenditure (CapEx) represents investments in assets with a useful life beyond one year. Common examples include office buildouts, server hardware, manufacturing equipment, and acquired intellectual property. In accounting, CapEx appears on the balance sheet as an asset and is gradually expensed through depreciation.
For most SaaS startups, CapEx is minimal because the business model relies on cloud infrastructure (an operating expense) rather than owned hardware. However, certain capitalized software development costs can qualify as CapEx under accounting rules, which affects both the income statement and tax obligations.
The CapEx vs. OpEx distinction has meaningful implications for cash flow reporting and tax planning. CapEx creates an asset that is depreciated over time, spreading the tax deduction across multiple years. Some startups prefer to lease equipment (OpEx) rather than purchase it (CapEx) to preserve cash and simplify accounting, though each approach has distinct financial tradeoffs.
Example
A startup purchases $24K worth of servers. Rather than expensing $24K immediately, it is capitalized and depreciated over 3 years at $8K/year.
Related Calculators
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